You can measure how much Toronto has changed in the last several years by counting the condos that have gone up, the local landmarksshuttered to make way for redevelopment, and the music venues closed. But one startup in particular exemplifies the city’s shift towards this current stultifying vibe: Bunz.

The Toronto-based startup’s origins lie in a Facebook group created by founder Emily Bitze in 2013. It began as an insider-y scene of young people bartering used stuff—the cardinal rule was “no money allowed in this zone.” The group soon exploded into having more than 60,000 members in the Toronto area alone, with spinoffs in numerous cities. Bunz was a critical entry point for many newcomers to a secondhand market for furniture, knick-knacks, food, and whatever else. People made friends, found housing, and formed bands through the Facebook group and its many offshoots.

The latest business move from Bunz came last Monday, when the startup announced in a press release that it had launched “a cryptocurrency with immediate, real world use” called BTZ (pronounced “bits”). BTZ is earned by users through the Bunz app by making popular posts or referring friends, and can be used as a unit of account for Bunz trades or redeemed for goods at 25 popular spots in the city like the Drake General Store and Tiny Record Shop.

More stores are coming onboard and more than seven million BTZ have been given out so far, according to Bunz CEO Sascha Mojtahedi. In a major city where Bitcoin never really took hold, that’s a big deal. There’s a major catch, though: BTZ isn’t a cryptocurrency by any popular definition of the term.

And given the Facebook group’s originally anti-money ethos, some Bunz members have been left feeling like something intended to stand outside the suited-up world of finance has been co-opted, like so many other things in Toronto.

CEO Sascha Mojtahedi. Image: Bunz

“I understand that by the technical definition that this does not qualify [as a cryptocurrency], I can respect and understand that,” Mojtahedi told me over the phone on Friday.

BTZ, as it turns out, is a so-called cryptocurrency without a blockchain, the decentralized ledger technology at the heart of Bitcoin and most other cryptocurrencies—a point for which Bunz was criticized on Twitter. In a blog post on Saturday, Bunz explained why it chose not to go “infrastructure-first,” citing the “poor usability” of cryptocurrencies. Unlike Bunz’s initial press release, the blog post described BTZ as a “digital currency” (a subtle but important difference) and so did Mojtahedi.

“It’s totally centralized at the moment,” Mojtahedi said in a phone call, explaining that BTZ was described as a “cryptocurrency” in the press release and a same-day story in The Globe and Mail due to “a disconnect” that was “a result of us moving really quickly.” The startup is working on blockchain technology alongside Toronto-based contractor ChainSafe Systems and plans to “migrate” the current system in three months, Mojtahedi said.

“This sounds like a loyalty program, similar to redeemable credits that some companies grant to their employees for lunch"

BTZ loosely functions like a currency of sorts. Bunz app users have accounts secured by a PIN that hold credits in the app. These credits can be exchanged between users during a Bunz trade when one person doesn’t have something the other wants, and credits are transferred from one account to another within a central system managed by Bunz. Credits from trades can be redeemed at participating retailers, and retailers can sell their credits back to the startup in exchange for dollars, or hold on to them. The point, Mojtahedi told me, is to give app users some value that they wouldn’t get on Facebook.

Without a blockchain component, one expert told me that BTZ in its current state is similar to a reward points program.

“This sounds like a loyalty program, similar to redeemable credits that some companies grant to their employees for lunch,” Emin Gün Sirer, co-director of the Initiative for Cryptocurrencies and Smart Contracts at Cornell University, told me in a Twitter message. “There's nothing fundamentally wrong with using a centralized database; after all, almost all loyalty programs in existence rely on centralized databases.”

When I called Aidan Hyman, founder of ChainSafe Systems, he was in Bermuda working with another of his company’s clients.

“There’s a number of factors why development [for BTZ] has taken this route, and it’s mostly to accommodate such a large user base,” Hyman said. “The big problem with the blockchain is [...] with all those transactions going on at the same time, we can have issues.” Most existing blockchain networks require fees to process transactions in a timely manner, and during periods of high traffic, networks tend to slow down and fees can balloon. These tendencies compound the “usability issues” in cryptocurrencies cited by Bunz in its blog post explaining why it didn’t launch BTZ with a blockchain.

This raises a pertinent question: If BTZ is working fine without a blockchain, why does it need one? "That this is private record keeping only makes the system better [than if it had a blockchain], since that at least is efficient,” Nicholas Weaver, a senior researcher at the International Computer Science Institute in Berkeley, California, wrote me in an email.

The main benefits of blockchain technology have to do with reducing trust in a central authority (such as Bunz) to keep the system running and keep track of everybody’s money. “Centralized databases carry counterparty risk, that coins will be unilaterally seized or rendered worthless,” Sirer wrote me in a message. Blockchain infrastructure will also allow “for anybody to verify any of the transactions” on the BTZ network, ChainSafe’s Hyman said over the phone.

There’s no technical white paper describing BTZ yet, and so it’s unclear how similar its blockchain will be to existing projects, or if it will come with similar guarantees. Parts of the project’s code will not be open sourced “for security reasons,” a Bunz spokesperson told me in an email. In contrast, virtual currencies like Bitcoin and Ethereum rely on open source code and a community of experts for security, not secrecy.

Image: Lex Morano, courtesy of Bunz

Why would anyone accept BTZ in exchange for real, physical goods? For the Drake, which runs the eponymous hotel and the Drake General Store as a retail offering, it’s about marketing potential.

“It could bring in a new customer that hopefully will spend even more dollars and BTZ in the store and continue to shop with us,” Kate Chippindale, senior marketing manager for Drake corporate, told me in a phone call. “That’s the long-term goal.”

Chippindale said the Drake may hold on to its BTZ and look for ways to trade it with the pop-up shops and artists it frequently works with, but ultimately it feels safe trading tokens for goods because Bunz is backing them with its own cash reserves via a buyback program at a rate of $10 for 1,000 BTZ. In turn, the Drake General Store accepts BTZ at that rate.

“The fact that we can cash [BTZ] back in for dollars whenever we want is what made us comfortable engaging with this as a partner in the early stages,” Chippindale told me. According to Mojtahedi, “any co-marketing partner” can invoice the startup for tokens they have accepted from customers.

The second layer of the BTZ economy is people trading amongst themselves for used goods. Here, the question of BTZ’s value becomes murkier. Bunz will not buy tokens back from users directly, who earn them through the app. When you were really hoping to get an interesting planter in exchange for your grandma’s dresser, how much are digital tokens worth to you instead?

"I don’t think that the economy was cashless or medium-of-exchange-less to begin with"

“There’s obviously a series of negotiations between two people to determine the value of what BTZ is,” Mojtahedi said over the phone.

“Typically I state we don't claim any value for BTZ with the exception of the inference value of people being able to buy a coffee from [partners], and 300 BTZ is about a cup of coffee, and that’s where the inference is made that 1,000 BTZ is about $10,” Mojtahedi told me. This, of course, omits that Bunz itself is arguably backing the rate at which stores accept BTZ with its token buyback guarantee of 1,000 BTZ for $10 (Mojtahedi declined to disclose the buyback rate, which was provided by the Drake).

“We will have some revenue generated from [the token economy],” Mojtahedi said, “but the vast majority will be passed back to users.” He didn’t specify where this revenue will come from, but noted that Bunz won’t skim fees directly from transactions in the app. Mojtahedi hinted that an entity linked to the startup will be holding a pot of BTZ tokens once the blockchain component is implemented.

“The treasury that will hold the largest reserve of tokens will be an arms-length organization that is autonomous and works with Bunz, but serves the community in the interest of its autonomy,” Mojtahedi said. This entity will likely be made up of community members and Bunz staff, he added.

Image: Bunz

Given Bunz’s original “no money allowed in this zone” ethos, some community members have looked upon the plan to launch a cryptocurrency—and the attendant confusion—as a betrayal of sorts. Just like everything else in Toronto these days, including weed, something that used to be chill is putting on a suit and getting a haircut.

On this point, Mojtahedi offered a gut-punch rebuttal. “I don’t think that the economy was cashless or medium-of-exchange-less to begin with,” he said. “There’s a number of mediums of exchange that Bunz was using already—[transit] tokens and gift cards are a big issue—so it’s a bit of a misconception to think that they’re not using them.”

Thinking back on my own introduction to Bunz when I moved to Toronto several years ago, this rings absolutely true. My first Bunz trade was a pair of boots I never wore for a bunch of TTC tokens and some beer; I might as well have been handed cash. And even when pseudo-money wasn’t used, Bunz was always transactional to the core—it wasn’t called the charity zone, but the trading zone, for a reason. As tempting as it is to see BTZ as an aberration from the mentality of the original Facebook group, it could also be seen as a long-overdue acknowledgement.